Relaunching Africa Can and Sharing Africa’s Growth

Dear Africa Can readers, we’ve heard from many of you since our former Africa Chief Economist Shanta Devarajan left the region for a new Bank position that you want Africa Can to continue highlighting the economic challenges and amazing successes that face the continent. We agree.

Today, we are re-launching Africa Can as a forum for discussing ideas about economic policy reform in Africa as a useful, if not essential, tool in the quest to end poverty in the region.

You’ll continue to hear from many of the same bloggers who you’ve followed over the past five years, and you’ll hear from many new voices – economists working in African countries and abroad engaging in the evidence-based debate that will help shape reform. On occasion, you’ll hear from me, the new Deputy Chief Economist for the World Bank in Africa.

We invite you to continue to share your ideas and challenge ours in pursuit of development that really works to improve the lives of all people throughout Africa.

Here is my first post. I look forward to your comments.

In 1990, poverty incidence (with respect to a poverty line of $1.25) was almost exactly the same in sub-Saharan Africa and in East Asia: about 57%. Twenty years on, East Asia has shed 44 percentage points (to 13%) whereas Africa has only lost 8 points (to 49%). And this is not only about China: poverty has also fallen much faster in South Asia than in Africa.

These differences in performance are partly explained by differences in growth rates during the 1990s, when emerging Asia was already on the move, and Africa was still in the doldrums. But even in the 2000s, when Africa’s GDP growth picked up to 4.6% or thereabouts, and a number of countries in the region were amongst the fastest-growing nations in the world, still poverty fell more slowly in Africa than in other regions. Why is that?

Part of the answer is that Africa’s population growth rates are still very high: 2.7% per year, versus 0.7% in East Asia. So a 4.6% growth rate for GDP translates into a much more modest sounding 1.9% growth in per capita GDP – less than the developing country average in 1999-2012. But an even bigger part is that Africa just seems less efficient at transforming economic growth into poverty reduction. That conversion is measured by what economists call the “growth elasticity of poverty”, a number that tells us by how much poverty falls for each percentage point in economic growth. According to a recent (and as yet unpublished) estimate by my colleagues Luc Christiaensen, Punam Chuhan-Pole and Aly Sanoh, that elasticity was about 2.0 in the developing world as a whole (excluding China) during the 2000s, but only 0.7 in Africa.

At this rate, even if countries in Africa continue to grow at the same rates as in the 2000s – a period when the external environment was particularly benign, with rising commodity prices and abundant liquidity – poverty in 2030 would be in the 26%-30% range (assuming constant inequality). Under similar assumptions for other countries, somewhere between 60% - 80% of the world’s poor would live in Africa.

Why is growth in Africa apparently less pro-poor than elsewhere? And what can be done about it? At first blush, at least part of the answer (beyond rapid population growth) has to do with both levels and changes in inequality. Inequality is relatively high in Africa: seven of the world’s 10 most unequal countries in the latest data in Povcalnet are in the region – despite the fact that African inequality is almost invariably measured for consumption, rather than income, while the opposite is true in Latin America. In addition, inequality has actually been rising in a number of countries. (Although the truth is that infrequent household surveys and changing methodologies are so common that we actually know relatively little about real changes in inequality in Africa – despite the impression you may get from various sources…)

This clearly reflects a growth pattern that is less inclusive than we might like. In our latest Africa’s Pulse and in our recent presentation on the State of the Africa Region to the Annual Meetings of the Bank and the Fund in Washington, we reviewed some of these data, and suggested a four-part strategy for better sharing Africa’s growth in the future:

• First, preserve macroeconomic stability. Africa’s growth success in the 2000s reflects policy improvements, but also a benign external environment. During this period, fiscal deficits and current account deficits grew in most countries (Figure 1). While that is understandable, given plentiful capital flows, the risk is that those capital flows cease – or reverse – precisely at a time when commodity prices have stopped rising and are, in many cases, falling. Countries with large fiscal and current account deficits are inevitably more vulnerable to those risks.

• Second, build more – but mostly better – human and physical capital. Of course, alongside increases in total factor productivity - this is what drives economic growth everywhere. Despite progress, the needs in Africa are enormous, in everything from health and education to transport and energy. Our emphasis here is on quality: there have been real gains in access, but children won’t learn unless the teachers show up at school and, in addition, actually teach! Similarly, the costs of power, water, transport and communications remain excessively high. That is partly due to sheer scarcity, and partly to geographic fragmentation, but not only. The way contracts are designed, the way competition is (or isn’t) promoted, and the way subsidies interact with firm incentives all need looking at as well.

• Third, promote growth in the places and sectors where the poor live and work. For most of Africa, that means in rural areas – both by finding better ways to promote higher yields in agriculture, and by strengthening the off-farm economy. Linkages to small and medium-sized towns seem to be an important ingredient. This suggests that “local investments” – in rural roads and electrification, for example – is likely to be as important as big flagship projects. Even if the political economy tends to favor the latter.

• Fourth, harness the power of growth that takes place elsewhere for investments near – or in – the poor. That is particularly pertinent for (the large and growing group of) countries with large natural resource sectors. Oil and mining are not intensive in unskilled labor and could, if left alone, develop almost as “enclave sectors”. The main policy concern with these resources is to invest as much as possible of the rents they generate into other forms of capital, to replace the natural capital being depleted. But countries should be imaginative and comprehensive in their choice of investment portfolio. The portfolio should obviously include infrastructure, health and education projects, to build physical and human capital. But it may also include foreign assets, to help with the risk of exchange-rate appreciation and “Dutch disease”.
And it should also include some cash transfers made directly to poor people. The prevailing evidence is that poor households tend to use the resources from small cash transfers rather wisely. They buy more and better food. They send their kids to school more often. And they even invest some of it in their own (very) small businesses: they buy chickens in Mexico, or goats in Tanzania.

That’s pro-poor growth for you! Poor people feeding their babies better and sending their children to school, while also building a new chicken coop. Let governments ensure that there are teachers there to actually teach the children, and you could be on to a really promising combination. It may look less impressive than a new oil platform or a shiny airport, but it will reduce poverty just the same, if not more!

Comments

Chico, I'm delighted that Africa Can is back, and congratulations on a nice opening post. Just one question. The four part strategy you propose for making growth more pro-poor is perfectly sensible. But why have African policymakers not followed them sufficiently in the past, as your data seem to show? Is there a built-in bias against macro stability, against quality human capital (in favor of quantity), against rural areas and for capital-intensive resourc extraction projects (at the expense of cash transfers)? Shanta

Shanta: Thanks so much for your comment. You are of course the father of the Africa Can Blog, so your thoughts and questions are particularly welcome - we have big shoes to fill here!!

Why haven't African policy-makers followed this strategy? Three points: (1) in many cases they have - or have tried to - witness TASAF in Tanzania. (2) In many others, they haven't, because states do get captured by powerful interest groups. The importance of political economy obstacles to pro-poor growth - ranging from outright corruption to less blatant forms of misgovernment - is something you have often rightly emphasized in the past. And it is probably where the bulk of the effort must go. (3) Less important, but perhaps easier - is the role of new knowledge and information sharing - so that policymakers learn new ways of doing things.

You write that growth is less pro-poor in Africa. Is that synonymous with corruption? I can imagine that corruption reduces the overall efficiency of markets, and prevents the downward trickle of resources to the poor because they are not a power bloc.

There are many factors that miltates against poverity in Africa. I will mention four. First the limited initiative and collective action for such positive change from both African ordinary peoples as well as elites themselves is important. Second, the various policies and actions of the Western states in maintaining Economic, legal and political structures in Africa just to protect the interest of the Western state and peoples is another factor that reproduce poverty in Africa. Third Multinational corporations that have primamry interest in mitigating profit is still another major and emerging factor. Fourth the inability of both the West and the African intelectuals to produce unbiased, relevant knowledge in relation to the situations is still another factor.

A striking feature of Sub-Saharan Africa is fragmentation: it has some 47 countries for a smaller population than China's or India's. The national borders, drawn arbitrarily, segment goods and labor markets, and results in border-crossing costs. To some extent these costs have been noted in the context of promoting trade and investments. But not in the context of migration of people. Africa has a large number of migrants, mostly intra-regional. Its development can be facilitated by harnessing the resources of migrants.

yes I believe we can end poverty if we get our priorities right.monies wasted on politics and politicians who only amass wealth for their families and cronies could be channelled into genuine programmes to end poverty.

Frist and for most am glad to be part of the generation committed to build new Africa,next it is my ambition to see Africa self sustained and liberated from poverty.so to further that i strongly support such novel ideas and activities, and I promised to be part of that transformation to the best of my capacity......!!!!

THE FIRST THING TO DO IN ORDER TO MAKE POVERTY HISTORY IN AFRICA, IS INVEST IN EDUCATION. SECONDLY, THE CORRUPT AND SEAT-TIGHT LEADERS WHO HAVE CLENCH THEIR CLIFFS, SHOULD BE DISLODGE AND DEMOCRACY SHOULD BE THE ORDER OF THE DAY.

I want to agree with YUFENYUY KEVIN! Appropriately focused Education beginning with the youngest is Key in Africa's development. Unless Africa deals with Basics first, a lot is still at stake. The obsession with unending "want" versus need is one of the driving forces behind Greed and selfishness. The misconception that wealth is power (minus knowledge on how to manage the power)is counter productive. Cultural issues, inter-twined with a stronghold of attitudes is a an uphill task. Africa needs selfless leaders with a passion to see Africa grow, to utilize Africa's numerous diversity of resources for the good of Africa and not for their individual stomachs and households. The perfect leaders for Africa exist in the very soft tender fabric of Africa's society, only if they can be given the opportunity to appropriate education.

To my understanding, we can do all the best we want to do for Africa. Moreover, to realize this, we need to fight corruption to achieve growth & make Africa prosperous. Specially, we need to strongly fight state corruption.

The part I like most is 'The truth is that infrequent household surveys and changing methodologies are so common that we actually know relatively little about real changes in inequality in Africa – despite the impression you may get from various sources…' now we are talking.

There is so much about Africa that is simply not understood or captured using existing conventional methodologies. It is time we adopted approaches more suitable for Africa's unique (not necessarily commercialized) rural economies. We may be in for some factual surprises.

The third part of the strategy; promoting growth in places and sectors where the poor live and work, is critical in bridging the economic inequality gap.

On the fourth part of the strategy, I am not particularly keen on African governments investing on anything that the private sector can do better. For example, government investment is schools and health units have led to widespread inefficiency, compared to similar private sector investment (albeit with far less capital input). For example, it is not surprising that many private schools and health units (both in rural and urban settings) consistently perform better, have less reported corruption incidences, require less capital input and have minimal recurrent budget requirements on government. An approach where government works with existing private sector players in these key sectors, as well as encouraging investment therein, may play well to mitigate identified risks and encumbrances. Only in extreme cases, would government direct investment be economically sound.

While this is a well researched document and I must acknowledge the information contained in it. I just wanted to echo one or two things and I hope the author did consider that in suggesting that poverty in African has continued whilst in Asia it is decreasing that's indeed right because one of the reasons the author mentioned is the reason is population growth. But we must understand the fact that Asia countries have been advocating for one child policy such countries like China and India has a policy on that though not mandatory like China. Secondly, I think more Asians than African are migrating to the western world. I wish the author could also include these in the book.

The elephant in the room is inequality in the social fabric-tackle that and political will..then Eureka!! The conviction among the masses is that recovering ill-gotten wealth should be done swiftly in one way or another. The 'CORRUPTION DEFICIT' Index can be recovered only by determined focused leadership-who will institute good governance structures and primarily drive consistent two digit economic growth numbers.

My Opinion to end poverty in Africa have to start in the rural Areas, that were the poor lives, ls were you will find people living in extreme poverty, most of them are farmers small scale business,To help Farmer provide quality seeds in Agriculture, high quality feeds for their live stocks and help farmers to get access in loans,To help Small scale business and Entrepreneur area of infrastructures steady power electricity , crate financial opportunity for long term financing,investing in education some of the rural areas have few schools children have to trek along kilometers to school, provide enough teachers, build more health care centers, some of the rural Areas in Africa doesn't have hospitals they suffer a lot to transport themselves to come out to the city, provide job training , and vocational schools, government to help construct road for them,some of them doesn't have access road, they suffer mostly during rainy season, To provide good drinking water , some of them drink from the stream this can cause disease,
Africa minerals should be transform by Africa's, not international companies , and our oil and gas should be refined by Africa's in a productive ways and explored, l think all this will reduce poverty in Africa .

You talk about preserving macroeconomic stability. But with fiscal deficits having increased and capital flows at risk, what does stability look like? Sustaining/continuing to expand the deficit to maintain existing growth... or austerity? @EvidenceBroker

You talk about preserving macroeconomic stability. But with fiscal deficits having increased and capital flows at risk, what does stability look like? Sustaining/continuing to expand the deficit to maintain existing growth... or austerity? @EvidenceBroker

Excellent piece. The importance of good quality infrastructure development (alongside other areas) can never be emphasised enough. I was therefore glad to note the emphasis on building more - but better - human and physical capital because this is indeed one of the keys to truly inclusive economic growth. Of course, there is always the paramount prerequisite for meaningful growth anywhere: good leadership and governance. If I may make a suggestion, it's that World Bank country representatives be encouraged to proactively share this thought-provoking article and other blogs like it with their local counterparts. It could make for a good cross-fertilisation of ideas and an opportunity for sound recommendations to be put into practice.

First and fore most thak alot World Bank for your e-learning corse: Economic Analysis of Investment. It is helping me alot and im advicing a group of youths on the importance of economic analysis before undertaking projects. Secondly, ending poverty in Africa will only be achieved via educating more African rather than depending on foreign aids,grants,donations etc.

African countries have vast resources of which they can most rely on.but this could not be the solution in deed there is no innovation.read on the agralian revolution in britain,bearing in mind africa economy is highly dependent on agriculture, the initiative irrigate more lands and then add value to the products and exports could be a great achievement to a stable economy.if farmers get their due,they will be motivated.second fighting the tornado of corruption which sweeps across africa finding the resources to the few ego-centrics.

Thanks for this enlightening article Chico. I would like to narrow down my comment but not limit it to Uganda. In my opinion, the inequality in Uganda is especially because the largest part of the population is engaged in subsistence agriculture, a lot of food and cash crops are grown but the access to markets, processing and knowledge to handle agro-yields is limited to mostly rudimentary methods. Infrastructure, especially in transport and processing is still very limiting which explains the acute price differences in agricultural commodities in urban centers as opposed to the roots. As the political and civil service clout continue to unfairly amass wealth through the bureaucratic system and invest by proxy, the largest part of the population that is actively involved in legitimate economic activities is stranded with their output! To redress this, I believe government policy should lean towards improving agricultural education, output and processing through intense mechanization and also invest a lot in sustainable infrastructure development in key collection/regional centres and the revival of a streamlined union(these were frustrated because of being potential political powere houses).

Dr. Ferreira,
you indicate that Africa must
"build more – but mostly better – human and physical capital"

The crux of the matter is that if these investments in total factor productivity result in greater economic growth, why are they not made? Government should see that doing so will raise their tax revenues, and (in the case of decent macroeconomic management), the financial sector should be able to channel resources to those investments.

The fact of such severe under-investment in human/physical capital implies either the risk of lending for these projects is overwhelmingly high (eg. due to corruption causing poor allocation of resources) or the perceptions of risk are unrealistic.

More information on why these profitable investments are not made is the real issue.

i had write about this on "Riodialogues":I suppose a new rule for Central Bank: when one of the CB, respectively of each country or through international agreements ,have a new emission of money whith each rate the same bank print corresponding quantity of money of rate off balance ,and give this quantity to compense the monetary mass at a pubblic commission that use for pubblic necessity etc etc...we resolve three problem :pubblic necessity,pubblic balance,and market crisis,;for example : the B.C. have a emission of hundred billion unit and fix a rate of 3% and give this money to privat bank or pubblic... at the same moment print 3 billion extra and give these to "pubblic commission" that spend for pubblic problem ...i hope to be clear bat if not you can conctat: :http://www.facebook.com/.../137335536277534

I am glad that Africa Can is not close to ending. The 4 part strategy proposal is very realistic as it considers the fundamental resources available and not using a high end idea that may be a challenge in itself.

However, it is one thing to come up with a strategy and a completely different thing to implement it. The unfortunate part is knowing that it's implementation still lies in the hands of African leaders who have shown minimal interest in ensuring that such good strategies proposed in the past worked. I am just scared that this may end up just in the papers while Africa's economic growth remains status quo.

Foreign aid may not be helping third world economies, but may infact be making them poorer. Research suggests that poverty in Africa is directly connected to the "foreign aid culture" and unless this trend of "free donations" is recessed,there will be no end to ending or reducing Africa poverty.

In my research i found that giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.

Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster.

Few will deny that there is a clear moral imperative for humanitarian and charity-based aid to step in when necessary, such as during the 2004 tsunami in Asia. Nevertheless, it's worth reminding ourselves what emergency and charity-based aid can and cannot do. Aid-supported scholarships have certainly helped send African girls to school (never mind that they won't be able to find a job in their own countries once they have graduated). This kind of aid can provide band-aid solutions to alleviate immediate suffering, but by its very nature cannot be the platform for long-term sustainable growth.

Whatever its strengths and weaknesses, such charity-based aid is relatively small beer when compared to the sea of money that floods Africa each year in government-to-government aid or aid from large development institutions such as the World Bank.

Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades.
Even after the very aggressive debt-relief campaigns in the 1990s, African countries still pay close to $20 billion in debt repayments per annum, a stark reminder that aid is not free. In order to keep the system going, debt is repaid at the expense of African education and health care. Well-meaning calls to cancel debt mean little when the cancellation is met with the fresh infusion of aid, and the vicious cycle starts up once again.

In 2005, just weeks ahead of a G8 conference that had Africa at the top of its agenda, the International Monetary Fund published a report entitled "Aid Will Not Lift Growth in Africa." The report cautioned that governments, donors and campaigners should be more modest in their claims that increased aid will solve Africa's problems. Despite such comments, no serious efforts have been made to wean Africa off this debilitating drug.

The most obvious criticism of aid is its links to rampant corruption. Aid flows destined to help the average African end up supporting bloated bureaucracies in the form of the poor-country governments and donor-funded non-governmental organizations. In a hearing before the U.S. Senate Committee on Foreign Relations in May 2004, Jeffrey Winters, a professor at Northwestern University, argued that the World Bank had participated in the corruption of roughly $100 billion of its loan funds intended for development.

As recently as 2002, the African Union, an organization of African nations, estimated that corruption was costing the continent $150 billion a year, as international donors were apparently turning a blind eye to the simple fact that aid money was inadvertently fueling graft. With few or no strings attached, it has been all too easy for the funds to be used for anything, save the developmental purpose for which they were intended.

In Zaire -- known today as the Democratic Republic of Congo -- Irwin Blumenthal (whom the IMF had appointed to a post in the country's central bank) warned in 1978 that the system was so corrupt that there was "no (repeat, no) prospect for Zaire's creditors to get their money back." Still, the IMF soon gave the country the largest loan it had ever given an African nation. According to corruption watchdog agency Transparency International, Mobutu Sese Seko, Zaire's president from 1965 to 1997, is reputed to have stolen at least $5 billion from the country.

It's scarcely better today. A month ago, Malawi's former President Bakili Muluzi was charged with embezzling aid money worth $12 million. Zambia's former President Frederick Chiluba (a development darling during his 1991 to 2001 tenure) remains embroiled in a court case that has revealed millions of dollars frittered away from health, education and infrastructure toward his personal cash dispenser. Yet the aid keeps on coming.

A nascent economy needs a transparent and accountable government and an efficient civil service to help meet social needs. Its people need jobs and a belief in their country's future. A surfeit of aid has been shown to be unable to help achieve these goals.

A constant stream of "free" money is a perfect way to keep an inefficient or simply bad government in power. As aid flows in, there is nothing more for the government to do -- it doesn't need to raise taxes, and as long as it pays the army, it doesn't have to take account of its disgruntled citizens. No matter that its citizens are disenfranchised (as with no taxation there can be no representation). All the government really needs to do is to court and cater to its foreign donors to stay in power.
Stuck in an aid world of no incentives, there is no reason for governments to seek other, better, more transparent ways of raising development finance (such as accessing the bond market, despite how hard that might be). The aid system encourages poor-country governments to pick up the phone and ask the donor agencies for next capital infusion. It is no wonder that across Africa, over 70% of the public purse comes from foreign aid.

In Ethiopia, where aid constitutes more than 90% of the government budget, a mere 2% of the country's population has access to mobile phones. (The African country average is around 30%.) Might it not be preferable for the government to earn money by selling its mobile phone license, thereby generating much-needed development income and also providing its citizens with telephone service that could, in turn, spur economic activity?

Look what has happened in Ghana, a country where after decades of military rule brought about by a coup, a pro-market government has yielded encouraging developments. Farmers and fishermen now use mobile phones to communicate with their agents and customers across the country to find out where prices are most competitive. This translates into numerous opportunities for self-sustainability and income generation -- which, with encouragement, could be easily replicated across the continent.

To advance a country's economic prospects, governments need efficient civil service. But civil service is naturally prone to bureaucracy, and there is always the incipient danger of self-serving cronyism and the desire to bind citizens in endless, time-consuming red tape. What aid does is to make that danger a grim reality. This helps to explain why doing business across much of Africa is a nightmare. In Cameroon, it takes a potential investor around 426 days to perform 15 procedures to gain a business license. What entrepreneur wants to spend 119 days filling out forms to start a business in Angola? He's much more likely to consider the U.S. (40 days and 19 procedures) or South Korea (17 days and 10 procedures).

Even what may appear as a benign intervention on the surface can have damning consequences. Say there is a mosquito-net maker in small-town Africa. Say he employs 10 people who together manufacture 500 nets a week. Typically, these 10 employees support upward of 15 relatives each. A Western government-inspired program generously supplies the affected region with 100,000 free mosquito nets. This promptly puts the mosquito net manufacturer out of business, and now his 10 employees can no longer support their 150 dependents. In a couple of years, most of the donated nets will be torn and useless, but now there is no mosquito net maker to go to. They'll have to get more aid. And African governments once again get to abdicate their responsibilities.

In a similar vein has been the approach to food aid, which historically has done little to support African farmers. Under the auspices of the U.S. Food for Peace program, each year millions of dollars are used to buy American-grown food that has to then be shipped across oceans. One wonders how a system of flooding foreign markets with American food, which puts local farmers out of business, actually helps better Africa. A better strategy would be to use aid money to buy food from farmers within the country, and then distribute that food to the local citizens in need.
Then there is the issue of "Dutch disease," a term that describes how large inflows of money can kill off a country's export sector, by driving up home prices and thus making their goods too expensive for export. Aid has the same effect. Large dollar-denominated aid windfalls that envelop fragile developing economies cause the domestic currency to strengthen against foreign currencies. This is catastrophic for jobs in the poor country where people's livelihoods depend on being relatively competitive in the global market.

To fight aid-induced inflation, countries have to issue bonds to soak up the subsequent glut of money swamping the economy. In 2005, for example, Uganda was forced to issue such bonds to mop up excess liquidity to the tune of $700 million. The interest payments alone on this were a staggering $110 million, to be paid annually.

The stigma associated with countries relying on aid should also not be underestimated or ignored. It is the rare investor that wants to risk money in a country that is unable to stand on its own feet and manage its own affairs in a sustainable way.

Africa remains the most unstable continent in the world, beset by civil strife and war. Since 1996, 11 countries have been embroiled in civil wars. According to the Stockholm International Peace Research Institute, in the 1990s, Africa had more wars than the rest of the world combined. Although my country, Zambia, has not had the unfortunate experience of an outright civil war, growing up I experienced first-hand the discomfort of living under curfew (where everyone had to be in their homes between 6 p.m. and 6 a.m., which meant racing from work and school) and faced the fear of the uncertain outcomes of an attempted coup in 1991 -- sadly, experiences not uncommon to many Africans.

Civil clashes are often motivated by the knowledge that by seizing the seat of power, the victor gains virtually unfettered access to the package of aid that comes with it. In the last few months alone, there have been at least three political upheavals across the continent, in Mauritania, Guinea and Guinea Bissau (each of which remains reliant on foreign aid). Madagascar's government was just overthrown in a coup this past week. The ongoing political volatility across the continent serves as a reminder that aid-financed efforts to force-feed democracy to economies facing ever-growing poverty and difficult economic prospects remain, at best, precariously vulnerable. Long-term political success can only be achieved once a solid economic trajectory has been established.
Proponents of aid are quick to argue that the $13 billion ($100 billion in today's terms) aid of the post-World War II Marshall Plan helped pull back a broken Europe from the brink of an economic abyss, and that aid could work, and would work, if Africa had a good policy environment.

The aid advocates skirt over the point that the Marshall Plan interventions were short, sharp and finite, unlike the open-ended commitments which imbue governments with a sense of entitlement rather than encouraging innovation. And aid supporters spend little time addressing the mystery of why a country in good working order would seek aid rather than other, better forms of financing. No country has ever achieved economic success by depending on aid to the degree that many African countries do.

The good news is we know what works; what delivers growth and reduces poverty. We know that economies that rely on open-ended commitments of aid almost universally fail, and those that do not depend on aid succeed. The latter is true for economically successful countries such as China and India, and even closer to home, in South Africa and Botswana. Their strategy of development finance emphasizes the important role of entrepreneurship and markets over a staid aid-system of development that preaches hand-outs.

African countries could start by issuing bonds to raise cash. To be sure, the traditional capital markets of the U.S. and Europe remain challenging. However, African countries could explore opportunities to raise capital in more non-traditional markets such as the Middle East and China (whose foreign exchange reserves are more than $4 trillion). Moreover, the current market malaise provides an opening for African countries to focus on acquiring credit ratings (a prerequisite to accessing the bond markets), and preparing themselves for the time when the capital markets return to some semblance of normalcy.

Governments need to attract more foreign direct investment by creating attractive tax structures and reducing the red tape and complex regulations for businesses. African nations should also focus on increasing trade; China is one promising partner. And Western countries can help by cutting off the cycle of giving something for nothing. It's time for a change.

Great article Ferreira. No, It may not be possible to end African poverty as long as there is continued corruption fueled by Foreign Aid aka "freebies donations" and international trade imbalances pegged on high interest foreign loans among others. Read my article on this link with